Friday, December 26, 2008

Fools Rush In - Searching for Magic ROI

If the current economy is encouraging you to think about shifting resources from traditional media to digital alternatives in search of cost effectiveness and overall efficiency, beware: nearly EVERYONE ELSE HAS THE SAME IDEA.

Implication: you will be moving into an increasingly cluttered marketplace, where broad reach options will continue to lose effectiveness and highly-targeted delivery will come at a higher price as demand outstrips the supply of good inventory and good people to execute. Consumers too will become increasingly savvy with respect to their digital media usage patterns, and harder to “impress” with incrementally new ideas or executions.

I know I’ll get lots of letters about this post “educating” me on the infinite scalability of the digital media, and reminding me that true creativity is likewise boundless. I’m sure many of you have research that shows how the returns to digital marketing programs just keep growing as the audience of users grows across more and more platforms. Fair enough. But the laws of marketing physics suggest that more marketers and marketing dollars will rush in to the arena than proven executional avenues can accommodate in the short term. And most of them will NOT bring breakthrough new creativity with them. That will create lots of failure and un-delivered expectations, which in turn may slow adoption of otherwise valuable marketing options.

Here’s a simple suggestion as you contemplate the great digital shift towards the promise of better ROI… set your expectations based on poorer results than you may have experienced in the past, and/or ratchet-down vendor claims of look-alike results presented in “case studies”. Before committing to the “me too” plan of going digital, ask yourself if your planned online campaigns would be a good investment if they were 10% less effective than originally anticipated? Would your new social networking programs still provide good payback if they had a 20% less impact on potential customers? These may very well be the new reality when everyone rushes in.

In stark contrast, a friend who’s CMO of a packaged goods company tells me that while he is continuing to shift the balance of his total spend towards digital media, he’s doing so in a measured way built on careful experimentation. He’s working on a cycle of plan>execute>learn>expand>plan again. So he’s spending 20% more on digital media in 2009 than in 2008, but not moving huge chunks of his total budget all in one big push for magic returns. Nope. His philosophy is “hit ‘em where they ‘aint.” He’s buying more radio and magazines – media he’s developed clear success cases with in the past and places he can more accurately predict the impact on his business. He may find himself all alone there. But I suspect that’s part of the appeal.


MarketMinder said...

ROI is the unseen evil taught in American Business Schools. In 1978 I was taught that the business of business is business and profit and that the role of the manager and the board was to "increase return on investment for the shareholder." I knew it was bullpucky even then.
What such thinking got us was empty calories, cars that broke down from built-in obsolescence and such "efficient" (in terms of ROI) companies that there has been no real growth in wages for the past 10 years; a dramatic reduction in employment benefits, outrageous insurance premiums and CEOs so frightened by the ROI cops that they will no longer "invest" anything.

This mania for ROI leads to over-capacity, deteriorating quality and disappearing margins.

The real role of the manager/ entrepreneur/ owner is "creation of value" once know as the transformation of raw materials into something which benefits mankind. It is only when there is a true benefit that the entrepreneur even has the right to ask for profit; it being his only payment for transforming a bunch of available pieces into something useful.

In the long run ROI is the metric that increases as investment decreases.

ROI is why the only investor left is the government.

If you want your brands and companies to starve to death, stop advertising. After all, the highest short term ROI comes from the lowest investment. Until residual good will dwindles to a public who is unaware that your product exists.

Marketers need to concentrate on creating value and telling their story to those who will benefit the most from their creation. This is how to hit the entire world economy "where they ain't."

Pat LaPointe said...

I completely agree the ROI can be a misleading approach. We've written about just that several times (see

But even if you argue that the purpose of business is "creation of value", you need to have some way to measure value. There are hundreds of other approaches in this blog and on our website. Have a look and you'll likely find something that offends you less :)

Anonymous said...

ROI is not an evil concept. At its most basic level it means getting more money back than you put in. Is that not important to business? A business that doesn't care about profits is on its way to be a capital-destroyer and should not be trusted with any money.

Now one could argue that a short-term focus on ROI can compromise long-term ROI, but declaring ROI evil is bad business.